3. Stock prices and intrinsic values Benjamin Graham, the father of value invest

Question

3. Stock prices and intrinsic values Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting machine, but in the long ruh, the market is a weighing machine." In this quote, Benjamin Graham was referring to the key difference between the "price" and the "value" of a security. In November 2006, Citigroup's stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007-2008 and by the end of october 2009, Citigroup's stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stoçk prices and intrinsic values, which of the following statements is true? O A stock's market price is often båsed on investors' perceived risk in the company. O The intrinsic value of a stock is based only on perceived investor returns You can estimate the value of a company's stock using models such as the corporate valuation model and the dividend discount model. Which of the following companies would you choose to evaluate if you were using the discounted dividend model to estimate the value of the company's stock? - O A company that is in a high-growth stage and plans to retain all its earnings for the next few years to support its growth O A company that has been distributing a portion of their earnings every quarter for the past six years

Explanation / Answer

1)

A stock's market price iis often based on investors perceived risk in the company

2)

A company that has benn distributing a portion of their earnings every quarter for the past six years

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